The four largest tobacco manufacturers are suing the Liggett Group in an effort to prevent Liggett from disclosing confidential documents. The Liggett Group broke rank from the larger tobacco companies by settling a class-action lawsuit by smokers. The tobacco manufacturers argue that the documents were developed as joint work product at a time when Liggett took part in an industry- wide defense strategy against the class-action suits. Here is the March 20, 1997 complaint.

NORTH CAROLINA
FORSYTH COUNTY

R.J. REYNOLDS TOBACCO COMPANY, BROWN & WILLIAMSON TOBACCO
CORPORATION, LORILLARD TOBACCO COMPANY, and PHILIP MORRIS
INCORPORATED,
Plaintiffs,

v.

LIGGETT GROUP, INC., and BROOKE GROUP, LTD., INC.,
Defendants.

COMPLAINT

(Verified)

Plaintiffs, complaining of the defendant, alleges and says:

1. Plaintiff R.J. Reynolds Tobacco Company ("Reynolds") is a New Jersey corporation with its principal place of business in Winston-Salem, Forsyth County, North Carolina.

2. Plaintiff Brown & Williamson Tobacco Corporation, on its own behalf and as successor to The American Tobacco Company ("Brown & Williamson"), is a Delaware corporation with a facility in Winston-Salem, North Carolina.

3. Plaintiff Lorillard Tobacco Company ("Lorillard") is a Delaware corporation with a manufacturing facility in Greensboro, North Carolina.

4. Plaintiff Philip Morris Incorporated ("Philip Morris") is a Virginia corporation with a manufacturing facility in Concord, North Carolina.

5. Defendant Liggett Group Inc. ("Liggett") is a Delaware corporation created in 1990 with its principal place of business in Durham, North Carolina.

6. The Brooke Group, Ltd., Inc. (the "Brooke Group") is a non-resident corporation that acquired Liggett Group, Ltd. in 1986. Liggett Group, Ltd. was in the business of manufacturing and selling tobacco products. In or after 1986, Liggett Group, Ltd. changed its name to Brooke Group. In 1990, Brooke Group created Liggett, which it wholly owns and controls, among other companies.

7. This Court has jurisdiction under N.C. Gen. Stat. Section 1-75.4. Venue is proper in the Superior Court of Forsyth County under N.C. Gen. Stat. Section 1-80.

8. All plaintiffs and defendant Liggett are engaged in, among other things, the manufacture and sale of tobacco products. At times relevant herein, Brooke Group was engaged directly, ant now is engaged indirectly through Liggett, in, among other things, the manufacture and sale of tobacco products.

9. For many years ant at all times relevant herein, there has been pending litigation against one or more of the tobacco companies involving issues of common interest. Further, for many years and at all times relevant herein, there has been threatened litigation, legislation and/or regulatory action against one or more of the tobacco companies involving issues of common interest.

10. For many years, legal counsel for the plaintiffs and defendants, acting on behalf of their respective clients, reviewed, discussed, developed, and provided legal advice as to joint work product and strategies on legal issues common to the tobacco companies that might emerge from pending or prospective litigation, legislation, regulation and matters in which they shared a common interest. The information shared by and among those counsel pertained to legal advice sought by counsels' clients from professional legal advisors in their capacity as the clients' legal advisors, related to the purpose for which the legal advice was sought, and was made in confidence by or to a client involving matters that are highly confidential. It was agreed and understood that such information would not be disclosed to third parties, even if a participant was no longer made privy to further information. The information shared by and among all counsel included the mental impressions of counsel and was prepared in anticipation of litigation by representatives of the plaintiffs and defendant Liggett.

11. Since about March 15, 1996, defendants' counsel has participated in such joint activities on a more limited basis.

12. At all times relevant herein, the information shared among counsel was confidential and privileged and was not to be, and has not been (except as required by court order) divulged to anyone other than to counsel their agents, and their respective clients. Nor was any participant ever authorized to divulge the information to other persons or entities.

13. On or about March 15, 1996, Liggett and Brooke Group entered into a Settlement Agreement with Attorneys General of certain states to resolve litigation filed or threatened against Liggett (the `'Settlement Agreement - "). The Settlement Agreement provided, among other things, that Liggett and Brooke Group would "cooperate" with parties currently in litigation against the tobacco companies. Upon learning of the Settlement Agreement, on or about March 21, 1996 representatives of the plaintiffs herein sought and received from authorized representatives of defendants assurances that they "have not and will not give to or provide to any other person any privileged information in violation of various joint defense and common interest privileges."

14. Defendants also agreed to provide plaintiffs prior to any dissemination or disclosure notice in sufficient time for them to seek whatever relief they deem appropriate.

15. No such notice has been provided to plaintiffs.

16. On January 9, 1997, the national publication The Wall Street Journal reported that defendants have ordered to release to certain lawyers representing states suing the tobacco industry, and/or those states' Attorneys General in at least 16 pending cases "documents including its own lawyers' handwritten notes about three decades' of meetings with lawyers from other U.S. tobacco companies." The article states:

If Liggett's current proposal is accepted, the most significant revelations from its documents are expected to come in the notes describing meetings held by a little-known group called the Committee of Counsel. This group of top in-house lawyers from the leading U.S. tobacco marketers met on a regular basis to discuss the industry's litigation strategy. The group still meets."

A true and accurate copy of the article is attached hereto as Exhibit A and is incorporated by reference as if fully set forth herein.

17. The Wall Street Journal article also states

"'The notes that Liggett's lawyers made at meetings with other lawyers are the most important thing they are bringing to the table,' says one individual involved in the negotiations, adding, 'This is the plum."'

* * *

"Liggett intends to make its documents available under seal to those attorneys general who embrace its latest plan and agree to use the information solely to try their own cases. Already, some involved in the negotiations are expressing optimism that the documents will be turned over before the start of the first state case in Mississippi in June [1997]."

18. The Wall Street Journal article further reports that the defendants have allowed at least one individual representing plaintiffs in lawsuits against the tobacco companies to look at certain documents they propose to turn over.

19. The Wall Street Journal article further reports that representatives of defendants are involved in the unauthorized disclosures:

The current plan's chief architects are Marc Kasowitz and Dan Benson, New York lawyers who work for Mr. LeBow, and Grant Woods, Attorney General of Arizona, who was the first Republican state official to sue the tobacco industry to recoup the cost of treating sick smokers. Don Barrett, a lawyer who is close to Mr. Kasowitz and represents the State of Arizona in its tobacco litigation, and Ron Motley, who is also representing a number of states, are prominently involved, too.

The article reports that Mr. Barrett confirmed the existence of the negotiations to divulge the documents.

20. On January 17, 1997, counsel for the plaintiffs met with counsel for the defendants and squarely put to them the question whether the defendants intended to divulge confidential and privileged information regarding plaintiffs. Counsel for the defendants assured that the defendants would not divulge such information. Counsel for defendants repeated such assurances as late as last week.

21. On March 19, 1997, the national news networks reported on their evening news that Liggett was settling its state Attorney General lawsuits and, as part of that settlement, was agreeing to disclose notes of legal counsel related to discussion of legal issues of common interest to the tobacco companies. A National Broadcasting Company news reporter contacted plaintiff Reynolds and stated that his sources indicated that the settlement, though not yet consummated, was imminent, and that the terms of the settlement called for the disclosure of such confidential and privileged information regarding the plaintiffs. The associated press has confirmed the report in a story run in the morning edition of the Winston-Salem Journal, a copy of which is attached hereto as exhibit B and is incorporated herein by reference as if fully set forth herein.

22. Plaintiffs have not consented to, authorized, or agreed to the dissemination of such confidential and privileged information.

23. Upon information and belief, defendants have divulged privileged and confidential information regarding plaintiffs, and defendants intend to further divulge confidential and privileged information.

24. Upon information and belief, defendants wrongfully seek to profit financially from their planned release of this confidential and privileged information.

FIRST CLAIM FOR RELIEF

(Breach of Contract)

25. The allegations of paragraphs 1 through 24 are realleged and incorporated herein by reference.

26. At all times relevant herein, the plaintiffs and defendants participated, through mutual assent and for good and valuable consideration, in a joint defense understanding and agreement whereby counsel engaged in the lawful sharing of strategies, information with documents, including privileged and/or attorney word product information with respect to pending and prospective legal, legislative, regulatory and administrative actions involving legal issues of common interest to the tobacco companies (hereinafter the "Joint Defense").

27. Pursuant to the Joint Defense, legal counsel to plaintiffs and defendants engaged in confidential and privileged communications that were made in the course of the joint defense effort and involved matters of common interest.

28. The communications between legal counsel to the plaintiffs and defendants were designed to further the joint defense effort involving matters of common interest to them.

29. Plaintiffs have not waived any privilege involving matters of common interest, nor have they authorized anyone, including defendants, to waive the privilege.

30. Upon information and belief, defendants have breached the Joint Defense understanding and agreement and their representations and agreement on or about March 21, 1996 not to disclose any confidential and privileged information without adequate prior disclosure, approximately causing plaintiffs damages excess of $10,000 as well as other irreparable injury.

31. Upon information and belief defendants intend to commit, or cause to be committed, additional breaches of the Joint Defense understanding and agreement.

32. There is an imminent danger that plaintiffs will sustain further irreparable injury for which there is no adequate remedy at law, and plaintiffs are entitled to preliminary and permanent injunctive relief against any future breach or disclosure.

SECOND CLAIM FOR RELIEF

(Misuse and Unauthorized Disclosure of Privileged and Confidential Information)

33. The allegations of paragraphs 1 through 32 are realleged and incorporated herein by reference.

34. The information plaintiffs shared with defendants is confidential and privileged information protected by common law privileges, including the attorney-client privilege, the attorney work product doctrine (as codified in Rule 26 of the North Carolina Rules of Civil Procedure and its state and federal counterparts), the joint defense privilege, and the common interest privilege, whose protections have not been waived by plaintiffs. Defendants have a duty not to misuse or disclose such confidential and privileged information.

35. Upon information and belief, defendants have made unauthorized disclosures of such confidential and privileged information and intend to make additional unauthorized disclosures, all in breach of their duty.

36. As a direct and proximate result of any misuse and unauthorized disclosure of such confidential and privileged information, plaintiffs have been or will be damaged in an amount in excess of S10,000 and have sustained or will sustain additional irreparable injury.

37. There is an imminent danger that plaintiffs will continue to suffer irreparable injury for which there is no adequate remedy at law, and they are entitled to preliminary and permanent injunctive relief against any future misuse or disclosure.

THIRD CLAIM FOR RELIEF

(Breach of Fiduciary Duty)

38. The allegations of paragraphs 1 through 37 are realleged and incorporated herein by reference.

39. At all times relevant herein, by virtue of its participation in the Joint Defense and because plaintiffs placed special faith, confidence and trust in defendants to protect their best interests with respect to the confidential and privileged information shared with defendants, through their legal counsel defendants are and were fiduciaries of plaintiffs. As fiduciaries, Liggett and Brooke, and their officers and directors, including LeBow, owed plaintiffs a duty not to disclose the privileged and confidential information disclosed to defendants.

40. Upon information and belief, defendants have breached their fiduciary duty to plaintiffs and intend to commit additional breaches of that duty by, among other things:

a. Misusing confidential and privileged information without authorization; and

b. Disclosing confidential and privileged information without authorization.

41. As a direct and proximate result of any breech of these fiduciary duties, plaintiffs have been or will be damaged in an amount in access of S10,000 and have sustained or will sustain additional irreparable injury.

42. There is an imminent danger that plaintiffs will continue to suffer irreparable injury for which there is no adequate remedy at law, and plaintiffs are entitled to preliminary and permanent injunctive relief against any future misuse or disclosure.

WHEREFORE, plaintiffs pray to the Court:

1. That Liggett and Brooke, their officers, agents, servants, employees, attorneys and all other persons in active concert or participation with them, including LeBow, be enjoined, both preliminary and permanently, from any misuse or disclosure of confidential and privileged information relating to plaintiffs or involving matters in which they share a common interest and resulting from communications between counsel for plaintiffs and defendants;

2. That defendants be ordered to:

a. Identify and produce to the Court under Seal for an in camera inspection all documents, including those which defendants (or anyone on their behalf) have disclosed or propose to disclose for the benefit of parties suing or threatening to sue plaintiffs and defendants, resulting from communications between counsel for plaintiffs and defendants and reflecting confidential and privileged information relating to plaintiffs or involving matters in which plaintiffs and defendants share a common interest, and

b. Identify all persons to whom said disclosures were made.

3. That plaintiffs have and recover of defendants compensatory damages in excess of $10,000;

4. That the costs of this matter be taxed against defendants; and

5. That the Court grant such other and further relief as it deems just and proper.

This the 20th day of March 1997

Keith W. Vaughan N.C. State Bar No. 6895

/s/Thomas D. Schroeder N.C. State Bar No. 12546

Counsel for Plaintiffs

OF COUNSEL:

WOMBLE CARLYLE SANDRIDGE & RICE, a Professional Limited Liability Company
P. O. Drawer 84
Winston-Salem, NC 27102
(910) 721-3600